The Online Mortgage Industry

1
The Online Mortgage Industry
95-731 Business Strategy and Electronic Commerce
Homework 1 01-25-2000

• Lisa Bembenick Naresh Bhaskar Joe Carlen Chad
  Carter Lbujomir Cvetkovic
• Heinz, CMU Spring 2000

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Major Market Players

• Government
• Fannie Mae
• Freddie Mac
• Banks
• Chase Manhattan
• PNC
• Mellon

• Brokerage Firms
• eMortgage
• Hotloans
• Mortgage Auction
• Americas Cashline

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A Sample Front Page
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Basic Process Outline 1

• Government and Banks
• Consumers submit application on line
• Government/Banks approve application directly
• Consumer receives loan directly through either
  the Bank or Government institution

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Basic Process Outline 2

• Brokerage Firms
• Consumers submit application online
• Brokerage firm approves application and connects
  consumer to lending institution
• Consumer receives loan through lending
  institution

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A Sample Signup Page
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THE ONLINE MORTGAGE APPLICATION PROCESS

• Process fairly uniform across the larger players
• Complete mandatory information form detailing
  personal contact, credit, housing purchase, and
  other relevant information.
• However, there are some discrepancies regarding
  applicant authentication. For example
• E-mortgage performs a comprehensive credit check
  before offering any valuable information to the
  client.
• MortgageDirect requires valid phone number and
  then immediately offers menu of potential "best
  fit" lenders from which applicant may choose.

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Customer Profile

• Who are the customers?
• Renters or first-time buyers
• Owners looking to refinance
• Customers with a loan in process
• Owners looking to buy an additional home
• Also, customers can be segmented according to
  mortgage amount (e.g., customers with mortgages
  over and under 252 K)
• Source http//www.mellon.com

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Attracting Customers

• How do they attract customers?
• Word of Mouth
• Referrals
• Media Advertising
• Direct Mail
• Web Banner Adverts
• On Websites where mortgages is not the primary
  service (e.g., banking), online mortgage service
  is bundled with the main line of business

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Value-Add Features

• Consumer can submit applications to various
  firms, seek the best rates -- all without having
  to leave the home
• Payment calculator
• Car loans
• Refinancing

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Additional Value-Add

• Some firms will auction consumers loan requests
  and lenders will bid for business
• Other Services
• Free Credit Assessment (HotL)
• Home value estimate (eM)
• Financial planning (PNC)
• Reverse mortgages for Seniors (Gvt)
• Loans for people with Disabilities (Gvt)

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Average Mortgage Rates

• National 1999 average mortgage rates

Source http//www.mortgage-net.com/trends/market
/
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Some Sample Prices

• 30-year fixed mortgage
• Todays low rates 7.89 (MortgageAuction)
• Rate 8.5/ Points 1/8 / APR (PNC)
• Rate 8.0 / Points 0.99 / APR 8.152 (Hotloans)
• 15-year fixed mortgage
• Todays low rates 7.67 (Mortgage Auction)
• Rate 8.0 / Points 3/8/ 8.44 (PNC)
• Rate 7.625 / Points 0.99 / 7.862 APR (Hotloans)

Quotes as on 01-23-2000 on http//www.mortgageau
ction.com
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Product Trial Inducements

• Loans for all credit types (Fairbank Mortgage)
• Direct Lender with no upfront application fees
  and same day pre-approvals (EquityOne Inc )
• Free analysis and consultation (Valley United
  Mortgage)
• Low mortgage rates, great customer service
  (Security National Mortgage)
• No Broker fee or middlemen (e-Mortgage)

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Repeat Customer Generation

• Flexible Adjustable Rate Mortgages (ARM)
• This could be fixed for 3,5,7 or 10 years.
• Security of a fixed-rate loan (e-Mortgage)
• Submit one application to 250 lenders
• Lenders bid for loan business in a real time
  auction. (MortgageAuction)
• Online Rate Tracker System for customers
• Customer chooses his/her desired rate and, once
  that rate becomes available, the customer is
  notified immediately. (Hotloans)